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Although the court concluded that the policy covered a loss caused by the weight of snow, disputed facts as to the cause of the collapse led to the denial of cross-motions for summary judgment. Freeway Drive Inv., LLC v Employers Mut. Cas. Co., 2017 U.S Dist. LEXIS 207165 (E.D Mich. Dec. 18, 2017).

Freeway Drive owned a single story commercial building insured by Employers Mutual Casualty Company (EMCC). The building sustained damage when trusses within the roof shifted and dropped, causing visible sagging. EMCC denied Freeway Drive’s claim.

Freeway Drive hired structural engineer Abdul Brinjikji to inspect the damage. He visited the building three times. On the first visit, he saw snow on the roof but could not estimate how much. Nevertheless, he opined that the collapse was caused by an overload of snow. He developed a plan to shore up the roof and repairs commenced.

After repairs were completed, Brinjikji visited the property a second time. He sill opined that the collapse was caused by snow load. His opinion did not change after this third visit.

EMCC retained an engineer, Richard Hamann, who also investigated the cause of the collapse. After the inspection, EMCC stated in a letter to Freeway Drive that the damage to the roof trusses was a result of fire retardant applied to the roofing structure when it was built. Over time, the fire retardant, along with moisture in the attic, resulted in structural failure of the trusses. EMCC concluded that the loss did not fall within the policy’s collapse coverage, that the damage was not caused by a “specified cause of loss” as defined by the policy, and that the loss was subject to the policy’s collapse exclusion.

After receiving EMCC’s denial letter, Freeway Drive tested a sample of the truss lumber for the presence of fire retardant. The test indicated the presence of small amounts of Boron, which was one of three major fire retardant tracer elements. But the amount of total fire retardant that permeated into the wood was minimal. Brinjikji later testified that Boron did not affect wood like earlier used fire retardants in older buildings did.

Freeway Drive sued EMCC and cross-motions for summary judgment were filed. The court first determined that the policy was “all-risk,” meaning the loss was covered unless the particular damage was specifically excluded.

Next, the court noted that “weight of snow” was a specified cause of loss” under the policy. While EMCC did not dispute that damage caused by weight of snow was covered under the policy, it contended that the plain language of the “Collapse Exclusion” barred coverage for collapse due only to the weight of snow. EMCC said that coverage could only be extended if a snow-load collapse occurred after construction, remodeling, or renovation was complete, and because of the use of defective materials or methods.

The court disagreed with EMCC’s attempt to limit the analysis to the “Additional Coverage – Collapse” provision of the policy. Although collapse was excluded from the policy, the exclusion did not apply if coverage was provided under the Additional Coverage-Collapse provision or if the collapse was caused by a “specified cause of loss.”

EMCC argued that the collapse exclusion exception had to be read in harmony with the Additional Coverage – Collapse provision. Interpreting the policy to provide collapse coverage for collapse solely due to a specified cause of loss rendered as surplusage the unambiguous language of the Additional Coverage-Collapse provision.

Freeway Drive argued that the plain language provided that collapse coverage was restored under the exclusion when the collapse was due to the weight of snow. The Additional Coverage – Collapse clause and the “specified causes of loss” provision were distinct exceptions to the collapse exclusion that had to be applied separately.

The court agreed with Freeway Drive. The policy provided coverage for collapse due only to a “specified cause of loss,” i.e., the weight of snow, regardless of the Additional Coverage – Collapse provision.

Nevertheless, the experts disagreed on the cause of the loss, creating a factual dispute as to whether the weight of snow, or deterioration due to fire retardant, caused the collapse. Hamann said that further testing was needed on the roof trusses. In the first test, traces of fire retardant were found. Brinjikji could not say for certain that the conditions in which the retardant could have affected the trusses did not occur. Neither party could demonstrate the absence of a dispute of material fact that either the weight of snow, degradation, or both, caused the loss. Therefore, summary judgment could not be granted to either party.

A Louisiana court of appeal affirmed a grant of summary judgment in favor of an insurer where the alleged damage did not manifest during the policy periods. Crosstex Energy Servs., LP v. Texas Brine Co., LLC, 2017-0863 (La. App. 1 Cir. 12/21/17).

The insured, operator of an underground salt dome, had CGL policies for multiple policy periods that provided coverage for property damage, defined as “physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it….” Years after the last policy expired, a sinkhole appeared near the salt dome. The plaintiffs in the underlying litigation, who own and operate a gas pipeline that traverses the edge of a salt dome, sued the insured alleging that the sinkhole was caused by its operations. The insured filed a declaratory judgment demanding defense and indemnity from various insurers under certain liability policies pre-dating the sinkhole. The insurers moved for summary judgment claiming they had no duty to defend or indemnify because the alleged damage did not occur during the policy periods. The district court granted the motion and the insured appealed, arguing that the policies do not limit coverage to property damage that manifests itself during the policy period and should be interpreted to cover possible hidden property damage that may have resulted from earth movement that may have occurred during the policy periods.

The court of appeal affirmed, finding that the underlying petition did not allege damage prior to the appearance of the sinkhole, and dismissed the insured’s argument that genuine issues of material fact existed as to whether hidden damage occurred before the appearance of the sinkhole due to subsidence and other invisible underground damage in the prior years.

In Endicott Constructors Corp. v. E. Amanti & Sons, Inc., No. 1:14-CV-12807-LTS, 2017 WL 3028877 (D. Mass. July 14, 2017), the plaintiff-subcontractor Endicott Constructors Corp. (“Plaintiff”) filed a lawsuit claiming breach of contract and quantum meruit against the defendant-general contractor E. Amanti & Sons, Inc. (“Defendant Contractor”) on a construction renovation project at a Veterans Affairs building in Bedford, Massachusetts. Plaintiff also brought a claim against Safeco Insurance of America (“Defendant Surety”) pursuant to the Miller Act, 40 U.S.C. § 3133. The two Defendants moved for summary judgment against Plaintiff’s claims. The District of Massachusetts granted the motions. Plaintiff is now appealing the decision to the First Circuit.

Though factually detailed, the decision serves as a review of numerous key concepts in construction law including the requirement of strict performance to recover on a contract breach, requirement of substantial performance to recover under quantum meruit, cardinal change, necessity of expert testimony, contractual notice provisions, and tolling applicable to the Miller Act statute of limitations.

The Court held that Plaintiff could not, as a matter of law, show “complete and strict performance of all its terms” because Plaintiff walked off the project with 1/3 of the subcontract to complete, and therefore could not recover on the contract itself.

Moreover, in addition to walking off the job, Plaintiff acknowledged, inter alia, that it performed defective work and did not pay federally-required wages. Accordingly, the Court concluded that the Plaintiff, as a matter of law, “did not substantially perform its contract obligations” which extinguished its claim for “quantum meruit” as well.

To avoid this harsh result on its contract-based claims, Plaintiff argued that a “cardinal change” had occurred excusing its performance. The Court hesitated to confirm that Massachusetts has adopted this doctrine, but in any event, held that the elements of a cardinal change were not present. The Court observed that there must be “alteration in the work [effected by the government] so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.” Here, because Plaintiff only pointed to the government adding supervisory personnel to its payroll and a large number of change orders, the Court was not persuaded that Plaintiff’s scope was “drastically altered.” Indeed that court emphasized that, In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989) the court had held that even 86 change orders was not sufficient to show a cardinal change to construction contract.

With respect to Plaintiff’s extended time claim, the Court, in dicta, questioned whether an expert is required to prove such a delay claim, but also noted that Plaintiff’s failure to do so may be at its peril as it had not presented a “coherent analysis” to allow a factfinder to could find in its favor.

Adding to Plaintiff’s challenges, it failed to present evidence that it had given notice of its claims within 7 days as required by the contract. The Court, without delving into whether the defendant was prejudiced by the delay, succinctly held that failure to comply with the contractual provision “will generally preclude all relief.”

With respect to the Miller Act action that Plaintiff filed on the bond provided by Defendant Surety, the Court was not persuaded that presence of Plaintiff’s trailers on the construction site would extend limitations period. The Miller Act requires that any action on the bond must be brought within one year of the “last of the labor was performed or material was supplied” by the contractor or supplier bringing the action.

If the First Circuit has an opportunity to weigh in, the law in these areas, as recounted above, may be further honed by its decision. If so, we will update this blog.

The insurer failed to present adequate evidence on summary judgment that damage caused by the collapse of a swimming pool was not covered. Klein v. State Farm Ins. Co., 2017 N.Y. Misc. LEXIS 3030 (Sup. Ct. N.Y. July 11, 2017).

Klein notified State Farm that his in-ground pool collapsed on February 5, 2014, with a side wall falling into the pool, causing damage to brick, borders and the patio around the pool. Upon inspection, State Farm’s agent found that the cover of the pool had partially fallen into the pool, and that the vinyl pool liner had a tear. State Farm covered the damage to the pool liner, but denied coverage for the in-ground swimming pool walls, the brick border and the patio surrounding the pool. State Farm maintained that the loss was due to a “collapse,” which was excluded under the homeowner’s policy.

The policy covered “the direct physical loss to covered property involving the sudden entire collapse of a building or any part of a building” caused by listed perils. The policy contained exclusions for wear and tear, faulty construction, earth movement and water damage.

Klein informed State Farm that the damage was caused by an arrow shot into his pool by an unknown deer hunter, which damaged the pool liner and then led to the pool collapse. Klein later found a piece of an arrow at the bottom of the pool. State Farm denied coverage, asserting that the swimming pool was not a “building” and that the collapse was not covered, even if caused by an arrow piercing the pool liner. Further, State Farm relied upon exclusions in the policy.

The court denied State Farm’s motion for summary judgment because its engineering report was not in an admissible form. Therefore, State Farm had not established from the language of the policy a prima facie case that damage to the pool walls, brick border and patio area was caused by wear, tear and the deterioration of the pool liner. State Farm also failed to establish that damage was caused by earth movement.

The federal district court found that the insurers could not escape coverage by summary judgment under their all risk policies. Eagle Harbour Condo Ass’n v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 54761 (W.D. Wash. April 10, 2017).

Eagle Harbour Condominium Association sued several of its insurers who denied coverage for hidden water damage. Various insurers provided coverage from 1988 to 2015.

The Association asserted that wind-driven rain and inadequate construction allowed water to penetrate the buildings’ sheathing and framing, causing decades of deterioration and decay, until the damage was exposed to view in August 2014. The insurers claimed that the loss resulted from poor decisions in constructing and inadequately maintaining a stucco building in the wet and windy Pacific Northwest. The Association argued that the policies did not explicitly exclude damage caused by wind-driven rain, so there was coverage.

The Association identified four possible efficient proximate causes for its loss: inadequate construction, wind-driven rain, repeated seepage of water, and rot or deterioration. The insurers argued that it was unnecessary to analyze the loss under the efficient proximate cause because no covered peril could have caused the loss. The policies did not cover inadequate construction, wear and tear, rot or deterioration, or repeated seepage of water. The Association countered that wind-driven rain was a distinct and fortuitous peril that none of the policies excluded.

The court noted that if the predominant cause of the loss was a question of material fact – such as when multiple perils combined to cause insured’s damage and at least one but not all were covered – the question of which peril constituted the proximate cause was left to the fact finder.

The policies excluded “repeated seepage of water.” They also excluded specific losses sustained by weather, so long as the weather event worked with an act of law, earth movement, power failure, and other specifically listed events. Rain, not acting with the listed exclusions, was therefore covered, so long as it did not leak into the property for over 14 days in duration.

Deterioration did not engulf the perils of weather and repeated water seepage either. The policy excluded coverage for deterioration, but not for weather and repeated water seepage.

The insurers also argued that wind-driven rain was not a fortuitous peril on Bainbridge Island, where rain was common. Therefore, the losses it produced were uncovered. But whether the Association knew hidden damage from wind-driven rain would occur was a question for the jury.

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